Thursday, November 5, 2015

Derivatives: "Managed Futures Funds Face Pain on U.S. Rate Rise"

The managed futures guys realized long ago that trend following is the only strategy that allows them to survive.
Unfortunately, by definition, trend following doesn't work so well at turning points.
From MoneyBeat:

Computer-driven hedge funds could be set for yet more pain if and
when U.S. interest rates finally rise, according to the founder of one
of Europe’s biggest such firms.

Ewan Kirk, whose Cambridge-based Cantab Capital Partners LLP runs $4
billion in assets, said that most funds in the $256 billion managed
futures sector are betting on government bond prices rising. If rates
rise, and bond prices fall, that “might be difficult” for such funds, he
said.

“The beginning of that move will be a little bit painful,” he said in an interview with the Journal.

So-called managed futures funds, which try to latch onto trends and
patterns in financial markets, have had a tough time in recent years.
They made large gains last year, but lost money in each of the three
preceding years, according to Hedge Fund Research, and are down 2.2%
this year.

Man Group’s $4.4 billion AHL Diversified fund is down 3.3% this year
to November 2 after losing 5.2% last month, according to data from the
firm. Winton Capital, which runs more than $30 billion, has seen its
Futures fund lose 0.8% this year to October 21, according to numbers
reviewed by the Journal.

Cantab’s flagship Quantitative fund, which was one of the world’s
best-performing hedge funds last year with a 39.3% gain, is down 10.5%
this year to the end of October, said a person familiar with the matter.

Mr. Kirk, a former Goldman Sachs partner who has a net worth of £210
million ($321 million), according to this year’s Sunday Times Rich List
for Britain, said funds such as his might have around one-quarter of
their bets in interest rates. However, he added that other assets they
bet on, such as stocks and currencies, could benefit from a rate hike....MORE

So why do commodity funds use trend-following?
Because trying to catch the turns is so dangerous to bonuses that the practice is best left to bloggers and other lunatics.
(sorry, still gloating over trading the recent S&P V-bottom almost
perfectly out in public, on the blog, in real time, backwards, in heels:
from warning in advance to calling the day of the bottom to
cheerleading the upmove to new highs-waddya mean "Memento Mori", where's
my laurel wreath, I'm going on parade)